Refer to the figure below to answer the following questions.
Figure 7.2.2
-In Figure 7.2.2, an increase in expected profit will result in a movement from point E to
A)point F.
B)point G.
C)point H.
D)point I.
E)either point I or point F.

Question

Refer to the figure below to answer the following questions.
  Figure 7.2.2
-In Figure 7.2.2, an increase in expected profit will result in a movement from point E to
A)point F. 
B)point G. 
C)point H. 
D)point I. 
E)either point I or point F.

Quizplus · Accepted Answer

As expected profit increases, the firm's willingness to take on risk also increases. This is represented by the shift of the indifference curve from IC1 to IC2. The firm would now choose point A, which lies on the new, higher indifference curve and offers a higher expected return than the initial point, E. Therefore, an increase in expected profit will result in a movement from point E to point A.

Refer to the Figure Below to Answer the Following Questions